Tiếng Việt| THE PRIME MINISTER | SOCIALIST REPUBLIC OF VIET NAM |
| No. 48/2008/QD-TTg | Hanoi, April 3, 2008 |
THE PRIME MINISTER
Pursuant to the December 25, 2001 Law on Organization of the Government;
Pursuant to the Government’s Decree No. 131/2006/ND-CP of November 9, 2006, promulgating the Regulation on management and use of official development assistance source;
At the proposal of the Minister of Planning and Investment,
DECIDES:
Article 1.-To promulgate together with this Decision the General Guidance on preparation of feasibility study reports for projects using official development assistance (ODA) capital of the group of five banks (Asian Development Bank – ADB, French Agency for Development (Agence Francaise de Development) – AFD, Japan Bank for International Cooperation – JBIC, German Bank for Re-construction (Kreditanstalt fur Wiederaufbau) – KfW, and the World Bank - WB).
ODA projects using capital from other donors may use this General Guidance to prepare their feasibility study reports.
Article 2.- This Decision takes effect 15 days after its publication in "CONG BAO." In case of difference with current regulations, the preparation of feasibility study reports for projects using ODA capital of the group of five banks must comply with this Decision.
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PRIME MINISTER
Nguyen Tan Dung
ON PREPARATION OF FEABILITV STUDY REPORTS FOR PROJECTS USING OFFICIAL DEVELOPMENT ASSISTANCE (ODA) CAPITAL OF THE GROUP OF FIVE BANKS
(ASIAN DEVELOPMENT BANK – ADB, FRENCH AGENCY FOR DEVELOPMENT – AFD, JAPAN BANK FOR INTERNATIONAL COOPERATION – JBIC, GERMAN BANK FOR RECONSTRUCTION - KFW, AND THE WORLD BANK - WB)
(Promulgated together with the Prime Minister's Decision No. 48/2008/QD-TTg of April 3, 2008)
TABLE OF CONTENTS
GENERAL GUIDANCE ON PREPARATION OF FEABILITY STUDY REPORTS FOR ODA PROJECTS
(for procedural harmonization between the Government and the group of five development banks: Asian Development Bank - ADB, French Agency for Development - AFD, Japan Bank for International Cooperation - JBIC, German Bank for Reconstruction - KfW, and the World Bank - WB)
FOREWORD
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1. Project description, proposing agency, implementing agency, and operating agency
1.1. Project description
1.2. Agencies responsible for the project
2. Time schedule for project implementation
3. Location for project implementation
4. Financial sources for the project
II. PROJECT BACKGROUND AND BASES
1. Bases for determination of the necessity and urgency of the project
1.1. Macro environment and development policy of the country
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1.3. Market: demand - supply analysis
1.4. Bases of the project
2. Project's objectives
3. The suitability and contributions to the national strategy, especially the national socio-economic master plan, regional or local socio-economic master plan, industry development plan
4. Relationship with other related projects
4.1. Relationship with other investment projects and measures previously implemented by the donors
4.2. Projects of other agencies which are directly related to the investment project under consideration
5. Proving of the necessity of the project
III. PROJECT DESCRIPTION: DESIGN, RESOURCES. OUTCOMES
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Analysis and selection of appropriate size and capacity
Identification of investment phase (if necessary)
2. Region to locate the project site and specific site
2.1. Basic factors for selection of project site
2.2. Analysis of natural, economic and technical conditions
2.3. Selection of site suitable to construction planning, land use planning (for construction projects) and market
3. Technology and technique
3.1. Selection of technology
3.2. Basic design regarding technology and equipment
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4.1. Overview: Identification of the program on creation of goods, services/output
4.2. Technology line for production of products/output and creation of services
4.3. Identification of input and supply capacity
4.4. Infrastructure and responsiveness
4.5. Research and application
5. Construction and site
5.1. Specific options on project site suitable to construction planning
5.2. Architectural and construction solutions
5.3. Basic design of construction
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7. Environment
7.1. Standards and norms
7.2. Solutions to environment management and protection
IV. TOTAL INVESTMENT LEVEL, STRUCTURE OF CAPITAL SOURCES. FINANCIAL PLAN
1. Total investment level
1.1. Elements of total investment level
1.2 Calculation of costs
1.3. Use of unit prices and ratios
1.4. Funding plan corresponding to investment implementation progress
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2.1. Fund sources
2.2. Recommendations on structure of fund sources
2.3. Anticipated financial plan
2.4. Working capital, operation and maintenance costs, financial mechanism
V. PROJECT IMPLEMENTATION AND OPERATION MANAGEMENT
1. Key data on the project-implementing agency
1.1. Institutional aspect
1.2. Business and financial aspects
2. Project implementation management
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2.2. Project management and staffing
2.3. Roles of contractors
2.4. Roles of consultants
2.5. Roles of organizations and other actors participating in the project implementation
2.6. Roles of donors and co-donors (if any)
2.7. Coordination mechanisms
3. The project implementation plan
4. Financial management
4.1. Financial plan preparation
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4.3. Mechanisms for budget approval and disbursement
4.4. Retroactive mechanism
5. Bidding management
5.1. Bidding procedures
5.2. Management and preliminary bidding plan
5.3. Contract management
6. Project operation: institutions and management
6.1. Agencies responsible for project operation (if not coinciding with the project implementing agency)
6.2. Procedure for transfer from the project-implementing agency to the project-operating agency
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VI. PROJECT OUTCOMES AND IMPACTS
1. Mechanism for monitoring and evaluation of project outcomes and impacts
1.1. Performance indicators
1.2. Main conditions and undertakings in loan-funded projects
1.3. Project evaluation mechanism
1.4. Monitoring mechanism and reporting regime
2. Investment efficiency: economic and financial efficiencies/ benefits
2.1. Financial analysis
2.2. Economic analysis
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4. Assessment of environmental impacts
5. Main risks
6. Controversial issues
7. Project sustainability
8. Logical framework (log frame)
FOREWORD
In an effort to harmonize international practice with Vietnam's experience, this guidance aims at:
i) Harmonizing procedures and policies on project preparation, appraisal and evaluation between the Vietnamese Government and international donors by introducing a general guidance on feasibility study which complies with international standards and meets the requirements of the Vietnamese Government and international donors.
ii) Serving as an instrument for investors, consultants and other concerned units to improve the quality of project dossiers, and as a basis for planning and implementing projects.
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The contents of feasibility study reports must be based on this guidance. In case of difference and a need of-adjustment to match with the industry's characteristics, explanations and bases for such adjustment are required.
I. SUMMARY REPORT ON THE PROJECT
Summary report on the project (maximum of five pages) aims at providing necessary information in the feasibility report, covering:
1. Project description, proposing agency, implementing agency, and operating agency
1.1. Project description
The section of project description covers project objectives, components, policies and main activities supported by the project, interests and target groups, and lessons withdrawn from previous projects.
a/ Project objectives: To state clearly and accurately development objectives of the project (overall objective of the project). The maximum is two objectives, which are presented in an importance-based order. Project objectives must present the unique development target of the project be practical, specific, measurable and able to reflect demands of the project's beneficiaries.
b/ Project components: In order to achieve the set objectives, it is necessary to obtain outputs. To describe each output of the project and then specific actions (activities) to obtain expected outputs, results and impacts of the project. A set of activities contributing to generation of an outcome for the project can be combined to formulate a component of the project. Project components and activities constitute methods to achieve overall objectives of the project. Project components may be:
- Construction and installation component (related to technology, equipment, construction and installation etc.)
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- Capacity building component (e.g., establishment of a system for monitoring ad evaluating development plans, re-organization of a ministry, evaluation of functions and tasks of an organization and personnel training).
- Credit component (e.g., credit for rural enterprises, micro-credit, etc.)
- Project management (e.g., procurement of equipment, vehicles, training, consultancy services, monitoring and evaluation, etc.)
- Other components.
Upon description of project activities, it is necessary to specify the scope of definable work, input factors necessary for execution of activities, specific time frame for execution of activities, from project kick-off to project completion and indicators used to monitor the project implementation progress (Section 5 -management of project implementation and operation, provides more details on responsible agencies for each activity of the project). For projects which comprise research activities, it is necessary to enclose a term of reference for researches to be funded by the projects.
1.2. Agencies responsible for the project
To state clearly names and functions of agencies responsible for the project in each phase:
- Project-proposing agency.
- Project-implementing agency (may be project management unit or investment owner).
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2. Time schedule for project implementation
The contents of time schedule for project implementation include sequence and time for implementation of main activities of the project, from the start to the completion, and for each phase (if the project is divided into many phases). The time schedule for project implementation must be practical to avoid any delay and all detailed activities must be incorporated into the project implementation plan. The time schedule must also take into account a contingent plan in terms of time.
3. Location for project implementation
To state clearly the location for project implementation (enclosed with the map of the project region).
Details of natural, economic and technical conditions for project implementation are described in Section 3.
4. Financial sources for the project
It is necessary to state clearly financial sources of the project to ensure sufficient budget for it. For projects using domestic financial sources, these sources may be the central budget, local budgets and community contributions. Financial sources of ODA projects may be provided by international donors, state budgets (central and local) and from community contributions. Necessary arguments for the utilization of ODA sources must be presented.
To describe conditions for funding from different sources (loans or non-refundable grants), modality of funding (via projects, industry development programs etc). If the project uses on-lending from ODA sources, it is necessary to describe terms and conditions for on-lending (interest rates, grace period, etc).
II. PROJECT BACKGROUND AND BASES
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To provide brief and concise description to ensure the following important requirements:
- To prove that there are sufficient bases for the project to be acceptable.
- To outline fundamental issues and details to be presented in the subsequent chapters.
To ensure the above-mentioned requirements, the following information must be included:
- The macro environment affecting the appearance and implementation of the investment project: economic, political, legal and social environments related to the project.
- Natural environment, natural resources, economic and social environment in the region.
- Explicit description of project objectives (which issues will be handled, which potential will be promoted); the level of contribution to the development and the suitability with the national strategy.
- The relationship with projects having been implemented, being implemented or going to be implemented and promoted by domestic and international organizations.
- Proving the necessity and benefits of the project in the market context, in line with the development plan of the region or the industry or the socio-economic development master plan.
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1.1. Macro environment and development policy of the country
The project must be originated from the requirement of domestic socio-economic development and in line with national development policy. To analyze the national economy and development policies from different aspects so as to determine impacts of the project, and, at the same time, recognize its priority position in the national development plan. It is necessary to take into consideration the following issues:
- Natural conditions: geographical position, climate characteristics, etc.
- Social and cultural environment: history of the country, social structure, population, and educational system, etc.
- Background and macro economic issues: growth rate, GDP, financial market, prices, international trade balance, economic system and macro regulating policies, external finance, job opportunities, poverty and hunger situation, natural resources etc.
- The State's development policies:
+ Development policies and objectives, priority objectives.
+ The State's public investment programs (PIP), investment orientations for development within the country and the industry; outcomes against the set objectives.
+ Industry's development policies: prices, taxes and subsidies, participation of private enterprises, overall investment plan, level of priority for the project in the State's plan.
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- Current situation of financing for the country; agreements between the Government and concerned donors of the project must be presented.
1.2. Conditions and bases of the project
a/ Industry
Current conditions and issues of the industry that has the proposed project (project industry):
- Overall evaluation of the industry development in recent time.
- National policy to encourage the industry development.
- Analysis and identification of major issues in industry policies that affect the project.
- Organization of the industry, functional organization of the industry for management of policy execution.
- Policy and institutional issues and other issues hindering the possibility to obtain better results within the industry or results of hunger elimination and poverty alleviation.
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- Natural, economic and social conditions that need to be considered and identified to serve as a basis to resolve the detected obstacles.
- Measures being applied by the industry to resolve outstanding problems and obstacles.
b/Region (locality)
- Natural, economic and social conditions that need to be dealt with upon, formulation of the project.
- Major features reflecting characteristics of the region and conditions related to the project (e.g., environment, public safety conditions, ethnic minority).
- Analysis of major issues, potentials and obstacles to the development of the region (locality).
c/ Development plan and master plan
To evaluate region/industry development plan or master plan (if any) to clarify the project's role in the mentioned region/industry development context. If there is no master plan, it is necessary to describe the implementation of the region/ industry development plan.
This section comprises description and analysis of undertakings, master plan, plan on socio-economic development of the industry, region or locality; clarification of the project's background in the development process of the region and industry (with attention paid to goals and objectives in the plan, levels of priority for all projects in the master plan, investment plan and progress as well as time frame for obtaining goals and objectives). This must include both description and analysis of:
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+ Industry's background and conditions.
+ The State's strategy in the areas of the industry.
1.3. Market: demand - supply analysis
To analyze and evaluate market, specifically demand-supply of products and services. Demand and supply analysis is a decisive factor to prove the necessity and potential of the project, determine the appropriate size of the project and time for investment.
The above mentioned results of analysis will serve as a basis for analysis of the project's benefits in the section of financial and economic evaluation; therefore, it is necessary to evaluate the extent of reliability and accuracy. Each hypothetical element must be well-founded and clearly described with detailed comments.
The demand-supply analysis must take into account current demand-supply and forecast on demand-supply in the future. It is also necessary to take into account the responsiveness of the current quantity of supply to actual demand quantity based on analyses (e.g., macro and micro analyses), the level of fluctuation in the past..., at the time of analysis and the source of data which satisfy the above mentioned requirements, specifically as follows:
- Demand factors (e.g., population, income, activities in other areas, etc.)
- Supply factors (suppliers of products and services within the country and project region, including import capacity).
- Database and data sources must be accurate (study, survey, estimates etc.).
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Important analyses:
- Essential factors to determine the demand for goods and services to be provided by the project; method to determine those factors and forecast of demand quantity.
- The responsiveness to forecasted demand quantity in future given the analyzed development context.
- The responsiveness to forecasted demand quantity in future given the capacity of current premises and the set plan.
- Attention to groups of people unable to make payment at necessary price level.
- Expected time frame to maintain selling prices in accordance with the demand for goods and services; the fluctuation level of actual selling prices.
Other analyses: Some projects (e.g., afforestation project, anti-flood projects) will not comply with normal demand-supply analyzing method; in such cases, the expected outcomes of the project and comparison with various solutions will be considered in qualitative and quantitative perspectives.
1.4. Bases of the project
- Outstanding problems at current or future time; unexploited development potentials, issues to be handled by the project.
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- Relationship between major issues of the project and relevant socio-economic development policies. To take into consideration specific outcomes brought about by the project (size, number of beneficiaries, etc.), analyze and evaluate the project's impacts on the people's life, economic development and the current supply capacity in the region so as to avoid cases where the project only resolves minor issues which exert insignificant impacts on development policies.
- Measures and extent of settlement of identified outstanding problems, including those related to unexploited potentials. The project's viewpoint, in principle, must meet the requirement of making considerable contributions to resolving identified outstanding problems. It is necessary to examine whether there exists any major reason that may affect the project's success. To propose issues to be supplemented and replaced upon detection of causes of obstacles.
- The project's contributions to the improvement of economic conditions, policies, laws and institutions, as well as contributions in terms of approaches of the industry and sector.
Project's objectives comprise:
- Specific objectives which the project is aiming at.
- The quantity and quality of goods and services which will be produced and brought to the market through construction, expansion or improvement of capacity, taking into account unforeseen things related to demand and supply and other issues (such as ensuring sufficient supply and consistence with the master plan. etc.). The objectives must have specific and quantifiable indicators (quantity, quality and respective time frame) which reflect the project's objectives and the extent of achievement.
- The future situation compared with the alternative without the project.
The overall objective of the project is contribution to the attainment of the national general objective. This objective is attained through the benefits brought about by the project to the economy and society, the project's contributions to the overall objective of the industry or to poverty alleviation and hunger elimination.
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- The benefits brought about by the project from the development perspective: benefits brought about by the project; impacts of its outcome on socio-economic development and various groups of population, organizations benefiting from the project.
- Specific indicators (quantity, quality and time relation) to determine the project's objective
- The relationship between the project and socio-economic development master plan.
- The relationship between the project and industry development strategy; the project's role in the industry's context from the market aspect and issues related to organization and policies.
- Specific development issues mentioned by the project.
- Policies related to the project, e.g. tax. subsidy, trade control, exchange rate and policies related to interest rates.
4. Relationship with other related projects
4.1. Relationship with other investment projects and measures previously implemented by donors
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- To describe projects of donors and the Government, which have been supporting region and industry development strategies with special attention paid to the suitability of the implemented projects or the project under preparation with the development strategy.
- To evaluate the outcome or importance of good and poor experiences which the project has learnt from other projects.
- To apply best experiences from lessons withdrawn from projects which have been completed or have been implemented domestically or internationally.
4.2. Projects of other agencies which are directly related to the investment project under consideration
- To review related projects which have been implemented, are being implemented or in the preparation process that may affect the feasibility and necessity of the project. To describe the relationship with other projects and the measures previously applied by donors; investment project should take into account other projects being in the preparation or implementation phase that max affect its outcome or cause problems to it; to consider the possibility of coordination with these projects.
- To describe the progress and plan for implementation of the concerned projects (if any).
- Other projects that may support or hinder the project; their impacts on the project's success; extent of coordination as necessary.
- The relationship, especially with previous technical assistance projects. To study the capacity of using the available relationship to improve the effectiveness of the economic and technical cooperation project.
- The coordination between ODA projects.
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5. Proving the necessity of the project
To provide brief description about the necessity of the project from the industry's and region's (locality's) perspectives, compared to the policies of the Government and donors, the development of the market and the project's potential.
III. PROJECT DESCRIPTION: DESIGN, RESOURCES, OUTCOMES
This Section refers to key issues of the project: forms of investment, size, location, inputs and relationship between functional divisions in operation and exploitation as well as issues of technique and technology, construction and implementation of the project. This section must present fully and specifically the following issues:
- Proposing and proving issues related to the project's technique and technology, including comparison of potential measures.
- Providing detailed description, including the project's location and technical solutions.
- Providing detailed description of construction works, various items of works of the project.
- Providing basic design and analysis of the feasibility in terms of technique and technology within the framework: material sources and responsiveness; conditions of construction sites; infrastructure and its responsiveness; personnel; construction solutions.
This Section requires analysis of the feasibility of investment size; major technical solutions (including the use of land, material sources, construction and installation, types of technology, technical equipment with basic technical parameters, regulations, standards, norms, and experiences from lessons withdrawn from actual activities of domestic and international projects, etc.), basic design (including explanations and drawings) with sufficient details to clarify the utilization of all investment resources, which will serve as a basis to estimate the volume of work, and demand for investment capital. The contents of this section will serve as a basis for the following specific works:
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- Application for the grant of land use rights (if necessary).
- Implementation of subsequent designing steps; organization of bidding for procurement and construction, taking into consideration the capacity of implementation, operation and maintenance.
The feasibility report must provide and present sufficient information to indicate the suitability, feasibility and readiness of each investment element and provide specific technical solutions.
The formulation of the project must reflect lessons withdrawn from analysis reports, activities which are being carried out or have been completed as well as the best international experiences. It is necessary to give reasons for selection or rejection of solutions identified in each specific section.
The method to define "Size", a major parameter of the project, depends on the industry and type of project, resources and demand, technology and other organizational and social factors. In general, most projects aim at satisfying certain type of demand. Therefore, it can be considered as an appropriate starting point which serves as a basis for project size (See Section 2. Item 1.3). Upon consideration of major conditions such as resources, capacity and technology, it is necessary to determine a reasonable size. The size must be defined given the limitation of time frame for maximum output capacity and must be consistent with the forecasted demand quantity in order to prevent the project from surpassing the limitation or becoming too large, which makes it fail to use resources effectively and even cause risks for itself.
1.1. Analysis and selection of appropriate size and capacity
- To identify decisive factors of size and specifically analyze development capacity in future (goods and services, market, growth rate, other suppliers, risks).
-To identify factors hindering the project and analyze consequences of the identification of size.
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- To describe technology size (hardware) or project output; the project size may be reflected through technology (hardware) or project output, e.g., irrigation area of irrigation project in agriculture, electricity generation capacity of power plants, production capacity of manufacturing projects, etc. Input capacity and output capacity must be clearly differentiated.
1.2. Identification of investment phase (if necessary)
- To consider the project's size in correlation with investment progress. Both of these factors must be identified based on the demand forecast, development plans of the nation, the industry and the region.
- To analyze factors that may hinder the implementation of the project. It is necessary to lessen the complexity of the project or phase out investment, i.e., implement the project in several phases.
2. Region to locate the project site and specific site
The project site must be identified based on some conditions with specific analysis and evaluation: proximity to consumption market; proximity to customers; proximity to material sources; taking full advantage of existing infrastructure; or favorable natural conditions, etc. It is necessary to consider all influencing factors, which serve as a basis for identification of project site, including the Government's decisions; analyses must be objective and based on decisive conditions for site selection. It is necessary to provide an overview of advantages and disadvantages of other potential solutions and reasons for rejection.
Construction site and position must be analyzed in detail in terms of construction planning. The construction planning must also present all limitations (if any) at the construction site, which may be a problem to the implementation, development or expansion in future.
2.1. Basic factors for selection of project site:
- Decisive factors for site selection for a specific type of project.
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- Evaluation of conditions and reasons for selection.
2.2. Analysis of natural, economic and technical conditions
The following points are taken into consideration in relation to the project region and regions affected by the project:
- Natural, administrative and social conditions.
- Transport infrastructure related to the project site.
- Potentials of materials, labor, water supply and drainage, power supply, communication and other potential.
- Limitations and risks related to site selection.
2.3. Selection of site suitable to construction planning, land use planning (for construction project) and market
It is necessary to consider the project site and type in land use planning.
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3.1. Selection of technology
Technology and equipment will be should be considered and selected to match with project size and construction site from technical and economic aspects. This section comprises the following major contents:
- An overview of technological solutions, alternatives, domestic or foreign; brief description of solutions for technical selection with basic data and diagrams of technological process.
- Viewpoints, criteria and standards used as a basis for selection of technology and production process. This issue should cover the following contents:
+ Calculations on necessary capacity of technological and technical facilities, including profitability, based on the size.
+ Capacity of the project-implementing unit in the area of construction and operation (the selected technology must match with qualifications of users and operators; match with the strategies to settle outstanding problems and the selection of technology should be closely linked with patents and qualifications of users).
+ Standards, norms and technical requirements.
+ The suitability of selected technology with domestic management level. "Suitability" is a relative concept: Technology is not necessarily traditional or modern, but must reflect well-founded selection or match with conditions of the nation or the locality where the project is located.
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+ Analysis of technological solution from economic and financial aspects, covering both operation and maintenance requirements
+ Selection of technology from environmental and ecological aspects.
- Overall evaluation of selected solutions from the aspects of size; site; major technical and material foundations and operation skills. To present benefits and limitations of each solution and remedies; technology transfer and technical assistance (if any) for the solutions.
- Selection of technology and equipment. To point out defects (if any) and reasons for acceptance.
3.2. Basic design regarding technology and equipment
This Section only presents technological and equipment aspects. This is necessary as it serves as a basis for subsequent Section 3.4 related to production/output. Construction aspects are presented in Section 3.5.3.
Contents of basic design regarding technology and equipment in the project preparation phase must meet the following three requirements:
- Identifying functional relationships between technologies and steps in the production process, including the itinerary of materials through various steps.
- Serving as a basis to determine total investment level.
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Contents of basic design in project preparation phase comprise total space for main equipment items; planning on major equipment items and technical solutions. The planning must specify technical characteristics of the project as well as the relationship with other projects.
The basic design regarding technology and equipment mainly comprises:
- Identification of the production process, machinery and equipment.
- Identification of the itinerary of materials and relationships in the production process.
Planning and basic design at feasibility study level must comprise diagrams and drawings. The specificity of functional and overall designs depends on specific items, aimed at ensuring the basis for calculation of overall investment level of the project (or of a scheme). Planning and basic design must meet the following requirements:
- Arranging site for and identify positions of basic equipment, routes of transportation, and suppliers of power, water, steam, gas, services, and other utilities, and the area that may be expanded in the future.
- Identifying positions of major items of equipment: regions related to input supply and output consumption; electricity and control equipment; positions of auxiliary equipment items, items of machine repair, garages, depots, research and application sections, etc.
- Providing diagrams for description of the itinerary of major raw materials, main input and output, main intermediary products and final products, through each step.
- Providing the planning of transport works, electricity line, water supply and drainage works; communications.
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4. Program on creation of products, services
Normally, all projects create products. If a project does not create goods or services, this must also be presented in this section of the feasibility study. In that case, it is necessary to describe output when the project is operated, and input, infrastructure as well as necessary researches or surveys.
4.1. Overview: Identification of the program on creation of goods, services/output
Technical items must be described in appropriate technical and economic conditions.
- Describing technical items.
- Presenting clearly bases for selection of various items.
- Describing major target groups and results to be achieved for each item.
- Indicating major input and output items for each item.
- Regarding outstanding problems in the industry as defined in Chapter II, presenting problems which will be settled and solutions.
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To list and describe technical criteria and quality of products (characteristics of various groups and types of goods and services to be created by the project).
To present diagrams illustrated with figures to show that inputs and equipment are used to produce goods and create services.
4.3. Identification of input and supply capacity
- Types of manpower (quantity for each type, requirements of qualification and professional skills; responsiveness; necessary solutions in terms of qualifications and training).
- Raw materials (type, quantity, quality, responsiveness: risks in the purchase process; solutions and alternatives).
- Auxiliary materials and other materials.
- Materials for maintenance and repair.
4.4. Infrastructure and responsiveness
- Energy (types, quantity, responsiveness and reliability).
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- Transport (types, quantity, responsiveness and reliability).
- Communication system (types, quantity, responsiveness and reliability).
- Other infrastructure, e.g., waste treatment system, labor safety system, fire prevention and fighting system (types, quantity, responsiveness and reliability).
- Measures required to upgrade infrastructure and/or enhance activities to provide necessary services.
4.5. Research and application
To identify and evaluate the necessity of development research, training. To describe programs on research and development, training to support the creation of products or services.
5.1. Specific solutions on project site suitable to construction planning
Survey results (geology, hydrography, typography, etc.) and the use of these data for construction. Solutions on site construction.
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5.3. Basic design of construction
The contents of construction design in the period of feasibility report preparation must meet the following three requirements:
- Proposing technical solutions, which reflect feasibility, safety and reliability.
- Serving as a basis to identify total investment level.
- Serving as a basis to implement the subsequent designing steps.
Feasibility study meets the above mentioned requirements through basic design. Explanations on basic design include the following contents:
- Features of total space; solutions for construction work routes for route-based works.
- Overall architectural planning for construction works with architectural requirements.
- Sizes and area of construction works and items (quantity, size, characteristics such as major materials and composition). To concentrate on major construction works and basic information on typography, ground clearance, technical infrastructure and issues related to technique (see Section 3.3) size and architecture.
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- Description of loading capacity features and their impacts on the works.
- The list of applicable criteria and norms.
- The proposed solutions must be presented on drawings with appropriate scale, the drawings must have sufficient details to prove that the project is feasible in technical terms and calculation of total investment level according to basis design has an acceptable preciseness. The drawing of basic design must be presented with main items, comprising:
+ Map on the project region, including information on the area, typographical characteristics and geological conditions.
+ Total space characteristics; construction route solutions applicable to route-based construction sites: overall map on the project site, showing construction area, traffic network, work linked to infrastructure as well as the area of greeneries and open space.
+ Drawings showing architectural solutions for works with architectural requirements: drawings to illustrate main buildings with main aspects (length, width and height) and quantity; relationship of the building with technical arrangement and diagrams (see Section 3.3.2).
- The works must have sufficient details to calculate costs and prepare project implementation schedule; various modules must De applied appropriately; to clearly specify quality of construction materials, quantity of materials.
- Other issues: Specify fixed items and items entitled to use more appropriate econo-technical solutions (if any), in the project implementation phase; to specify survey requirements which will be met in the project implementation phase.
6. Plan on ground clearance and resettlement
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- The scope of ground clearance and impacts of resettlement.
- Policies and benefits.
- Compensation policy.
- Organization of implementation.
- Formulation of a sub-project for the purpose of ground clearance and resettlement plan.
- Community counseling and mechanism for resolution of claims and petitions.
- Implementation progress.
- Capital sources.
- Monitoring and evaluation.
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7.1. Standards and norms
To present environment-related standards and norms used in the design to serve technological, technical and construction contents.
To present measures applicable to minimize impacts on environment in the detailed design and project implementation phases.
7.2. Solutions to environmental management and protection
To describe requirements related to environmental protection in the operation and maintenance phases.
To clearly present management measures and organization in order to attain the criteria specified in regulations on environmental protection; formulate plan on environment management in consistence with the contents specified in the environment impact assessment report.
IV. TOTAL INVESTMENT LEVEL, STRUCTURE OF CAPITAL SOURCES, FINANCIAL PLAN
The total investment level is formulated based on the basic design and technical solutions which are introduced in the previous sections. Determination of the total investment level of a project is one of the most important contents in project formulation task and serves as a basis for the formulation of capital plan and financial analyses. Mistakes in calculation must be avoided such as insufficiency, inaccuracy, lack of elements of unit prices; incorrect unit prices; lack of provision or incorrect estimates of provision. All of these will cause lack of capital and hinder the completion of the project.
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In this step, the project must be divided into items, sub-items, and articles to formulate separate costs in consistence with the type of work, quantity and unit price. Based on separate costs, to calculate total investment level for the whole project, including foreign currencies and domestic currency, to serve as a basis for the formulation of an appropriate capital plan.
Upon determination of total investment capital, attention must be paid on the following issues:
- Total investment level must comprise working capital (in case of production and business project), interest in construction process, as well as provision for prices and arising costs. Project costs must be compared with those of other similar projects.
- The availability of capital sources of the project. The adequacy of domestic capital sources. Domestic capital or donors' capital must be carefully considered to ensure adequacy and timely allocation. Local capital (if any) must also be carefully considered.
- The suitability of capital plan with the project's costs according to the implementation progress.
- To identify financial sources for the part of capital other than ODA sources, to evaluate its adequacy.
1.1. Elements of total investment level
Total investment level comprises different cost elements depending on each specific project. The costs of each item must be calculated based on the respective basic design, technical characteristics, services and unit price.
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Cost items
1
Ground clearance and compensation
Costs of ground clearance and compensation depend on project type and size. The costs of this item must be estimated in details, especially in case of resettlement not on a voluntary basis. The costs for infrastructure at location of resettlement, for environmental protection measures; protection of culture and beliefs, and protection of nature must be taken into consideration.
2
Construction and construction works
Composition of construction works and construction activities (construction materials, construction machines, etc.)
Construction services or labor
Fuel, transportation and other costs
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Goods and services
Machines and equipment, auxiliary materials
4
Project management costs
All costs related to the management of project implementation (costs for the project management unit, etc.), excluding costs of consultancy services and outsourcing services.
5
Consultancy services
Costs of consultancy services must be estimated based on the tasks assigned to consultants. These costs are divided into costs of consultants' income; direct costs (machines, training, etc.)
6
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Costs for training beneficiaries or other training costs not yet taken into account in consultancy services.
7
Taxes and fees
Taxes and fees directly related to project investment
8
Interest in the construction period
Separate calculation based on actual interest rates in consistence with domestic or foreign capital sources.
=
Total basic investment level
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9
Provision
Physically arising: provision for the increase in the work volume (quantity of work, quantity and type of equipment, method and time of implementation) caused by unexpected factors and depends on the characteristics of the project.
Arising due to prices: provision for price increase after estimates have been prepared based on the trends of price index. The longer the time of project implementation, the higher the possibility of price increase in domestic and international markets.
The provision arising due to prices is calculated by adding the basic price to physically arising price and divided into domestic currency and foreign currency amounts.
Basis for calculation of price provision after commencement of a contract must be based on relevant regulations of Vietnam.
10
Working capital (production and business project)
When the project starts operating, there muse be a necessary quantity of materials and funding for operation of construction works in a production cycle
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To examine the accuracy and rationality of technical items, clearly describe technical characteristics and quantity of demanded goods and services. To study and select methods to make estimates for each item.
Costs are calculated based on cash expenditures. The calculation of project costs must take into consideration the following aspects:
- Regulations, norms: To follow legal documents (laws, decrees, circulars, etc.) regulating pricing method for each type of work.
- Market price and norm price: General estimates should reflect actual prices in a context of current economic conditions. Market price can be applicable in case of sufficient bases. If there is a regulation on cost levels, it is necessary to present additional estimates based on norms. The difference in calculations must be explained, the excess level against the norms and the necessity for its application, the impact on the success of the project must be proved and requested for approval.
- Currency: Goods and services may be purchased domestically or imported. Cost items should be based on actual offers, then converted into the selected currency according to the actual exchange rate. It is necessary to clearly specify the exchange rate for conversion.
There should be a summary table to present bases and methods of calculation of estimates.
General estimates: overview of methods
Items of costs
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Market price/ norms
Basic currency (domestic and foreign currencies)
Exchange rate
1
Ground clearance and compensation
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Construction and construction works
3
Goods and services
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4
Project management costs
5
Consultancy service
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6
Training costs and other costs
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Taxes and fees
8
Interest in construction process
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9
Provision for price increase
Physical provision
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10
Working capital (production and business project)
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Projects are different in nature despite some similar aspects. The following table may only introduce general comments based on actual unit prices and for reference only:
General estimates: some comments on unit prices and ratios
1
Ground clearance and compensation
Costs for ground clearance, long-term lease, or norms applicable to ground clearance or compensation.
2
Construction and construction works
Composition of construction works and construction (if the project is not a turn-key one, it will be divided into construction materials, construction machines. There will be prices for materials, machine renting costs, etc.; manpower: actual income, basic salary; fuel, transportation means and others: actual prices.
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Market prices or unit prices according to other similar projects; comprising costs of transportation, loading and unloading, and insurance to construction site.
4
Project management costs
These costs must be calculated based on actually arising costs.
5
Consultancy service
Based on regulations of the Vietnamese Government and donors, costs are calculated as per month/week/day and subsidy.
6
Training costs and other costs
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7
Taxes and fees
Taxes and fees must be pointed out according to current regulations. If the project is exempt from a tax or fee, related arguments are required.
8
Interest in construction period
9
Provision (physical)
This provision changes mainly depending on the industry and type of project. Therefore, the rates of addition can only serve as preliminary orientations based on experiences:
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- Construction and installation works and equipment in general: 10-15%.
- Construction and installation works in difficult conditions, complicated construction and installation works and equipment: 15-20%.
In some special cases, for particular projects (e.g., construction of tunnels deep in stone mountains), the above provision rates may be higher.
Provision for price increase
Provision for price increase aims at offsetting the increase in domestic and international prices for items of costs of the project and must be calculated annually and accumulated in the whole project implementation process. In many cases, it is possible to use estimated increases in prices corresponding to domestic and international inflation situation, assuming that prices of the project items increase along with inflation.
However, this issue may make the total investment level of the project considerably different. Therefore, provisions for price increase must clearly be calculated with clear arguments.
If contracts are awarded based on the basic price and price increase formula, such formula will be used to calculate the provision for price increase.
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Input costs for production (manpower, materials, fuels, auxiliary materials, etc.) of a production cycle.
1.4. Capital plan corresponding to investment implementation progress
The demand for capital is related to the project implementation progress. It is necessary to prepare annual capital plans, broken down into expenses in domestic currency and in foreign currency based on detailed calculations of the implementation progress (See Chapter 5, Section 5.3).
2.1. Capital sources
Capital sources and types of financial contribution:
Capital sources and types
Funding item
Source/organization
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Owner's capital
Loan capital
Non-refundable capital
Project operating unit
Government
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ODA
Multilateral development organizations
Bilateral development organizations
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Financial sector
(International) investment banks
Commercial banks
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Investment funds
Investment organizations
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Equipment suppliers
Capital market
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The extent to which the demand for capital is satisfied and conditions for capital use depend on the project nature. However, when a project is capable of recovering capital like an infrastructure project, which was not use to attract investors but now is appealing to them, it is necessary to create conditions for the private sector to make investment and the Government will only allocate the state budget and ODA capital when necessary at a limited funding level.
Regarding the use of foreign capital sources, risks of foreign exchange rates should be taken into account.
2.2. Recommendations on structure of capital sources
It is necessary to prepare a detailed proposal on structure of capital sources after studying the sustainability and financial procedures of these sources; and evaluating funding capability for the project.
In case the project is co-financed-by a bilateral or multilateral financial institution, it is necessary to consider the results of negotiation with the funding parties and the (largest) capital portions they will contribute; examine details of items.
Note: compensation expense, ground clearance expenses, taxes, fees and charges, administrative costs, and management unit expenses are usually covered by domestic capital.
It is necessary to clarify the necessity of utilization of ODA sources, the reasons for not using domestic capital sources: to clearly indicate advantages of utilizing ODA sources or non-refundable capital sources from specific donors; major conditions for the use of anticipated source of capital; to propose the approval or disapproval and indicate the donor's conditions for the grant of capital.
When arranging capital sources, it is necessary to take into consideration a plan on provision for use in case the ODA capital is not sufficiently granted; it is necessary to consider other alternative sources such as the central budget; local budgets; owner's capital; borrowings from commercial organizations; or loans or non-refundable aids from other capital-contributing organizations.
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Capital sources and conditions
Sources
Currency
Amount
Term
Grace period
Interest rate
Fees and charges
Currency risks
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3:
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In case of ODA on-lending to companies and organizations, it is necessary to study the on-lending mechanism, the organization that will bear the risks of foreign exchange rate changes and recommend regulations.
2.3. Anticipated financial plan
It is necessary to take into account the annual demand for capital, paying attention to the suitability with the project implementation progress, the respective forecasted demand for domestic currency and foreign currencies for each year and provisions arranged each year.
2.4. Working capital, operation and maintenance costs, financial mechanism
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Operation and maintenance costs are usually used in financial analyses. When the project does not generate enough profits to compensate for operation and maintenance costs, the project sustainability is likely to be at risk. In this case, it is necessary to plan for replenishment of capital from other sources, such as the central budget; local budgets; owner's capital or donors' non-refundable aids.
V. PROJECT IMPLEMENTATION AND OPERATION MANAGEMENT
This Section will outline detailed information on the project implementation and operation mechanism, including information on:
- The project implementation management mechanism: the organizational structure and capability of management of the project.
- Project stakeholders: those who will participate in the project implementation and their roles in the project.
- Detailed project schedule: all activities will be listed with starting time and completion time.
- The project financial management mechanism to ensure adequate financial resources for the project. Descriptions of accounting procedures, financial statements, auditing and disbursement mechanism to be applied to the project.
- Management of project procurement and bidding.
- Operation and operation management mechanism of the project.
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1.1. Institutional aspect
- Legal issues: Legal bases, regulations, legal forms and entities, autonomy, purposes of the project (for-profit or non-profit).
- Organizational issues: Organizational diagram, accounting system, information technology, internal control, management unit and staffing, commendation, training.
- Experience from similar projects (number of projects, project size, capital sources, donors).
1.2. Business and financial aspects
- Products (if any) and services: types, revenues (if any), customers, prices and costs (if any).
- Instruments and facilities.
- Accounting form (cash accounting/ accumulative accounting, commercial/budget).
- Capital sources, annual revenues and expenditures.
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2. Project implementation management
2.1. Organization of project implementation management
It is necessary to describe tasks, roles and responsibilities of each agency in the project implementation specified for each activity (enclosed with the organizational diagram of project implementation). If the responsibilities are overlapped, it is necessary to specify mechanisms to handle conflicts that may arise from such overlapped responsibilities. It is necessary to consider whether the project has adequate human and financial resources, experience and capability needed for good implementation of anticipated activities in the project or not. If not. it is necessary to identify remedies, (such as human resource training, technical and management assistance etc.).
2.2. Project management and staffing
To identify which organizations/units will participate in the project implementation and approaches to be used to mobilize all relevant organizations/units to participate in the project. To give preliminary description of the organizational structure of the unit that is anticipated to take the responsibility for the project implementation under the investor or the unit appointed to be the project management unit, functions and responsibilities of the investor/ project management unit, purposes, characteristics, capabilities, and managerial, technical and financial experience as well as the operation process of the project implementing agency. A detailed regulation on functions and tasks of the project key positions; coordination mechanisms to be applied among the project implementing agencies and between them and the project operating agencies is required
It is necessary to assign staff for key positions during the project preparation phase to ensure maximum continuity from preparation to implementation of the project, (these officers may not necessarily work on a full-time basis during the project preparation phase until the project is approved). To implement the project, it is necessary to appoint officers to key positions and train them before the project starts.
2.3. Roles of contractors
To clarify the roles of contractors in monitoring construction works and project management; supply of goods and services, execution of construction and installation works, etc. At the same time, it is necessary to specify mechanisms for the project-implementing agency to monitor and evaluate contractors’ performance results.
2.4. Roles of consultants
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2.5. Roles of organizations and other persons involved in the project implementation
To clarify the roles of related agencies such as the administration, non-governmental organizations (NGOs) and other project participants. To specify the open consulting process, the way to make several types of decisions, identify levels that will implement the decisions, levels that will evaluate the decisions and anticipate what can happen and mechanisms to deal with different opinions.
2.6. Roles of donors and co-donors (if any)
For ODA projects related to co-financing, it is necessary to clarify (a) the roles of co-donors, (b) type of co-financing (common or parallel), (c) guidelines for bidding that may be applied to the project components and (d) any differences (procedures, principles or regulations) that may arise.
2.7. Coordination mechanisms
To describe the mechanisms, both official and unofficial, which are anticipated to be applied for promotion of activities and coordination among the project participants. If a project steering board is founded to perform the coordinating function, it is necessary to specify the structure of the steering board with all of its members (there may be no specific names yet, but it is necessary to indicate representatives of which organizations/ units) and the tasks assigned to each member.
3. Project implementation plan
To prepare a detailed and realistic project implementation plan. To do so, it is necessary to specify operational relations among project activities, the time frame and the sequence of specific activities as indicated in the project description, obtain opinions of experienced and qualified officials in implementation of similar activities. To determine major activities regardless of whether they are directly related to the project financial expenses or not.
To use several tools to present the project implementation plan such as a bar chart or a Gannt chart showing the sequence of steps to identify major activities. Suitable tools are selected depending on the project nature. To identify the time frame and order of implementing major activities (bidding, capital disbursement, site selection, ground preparation, approved policy actions, legal actions, technical assistance, industry structure adjustment, dissolution, privatization, appointment of auditors, training...). and calculate appropriately time for implementation based on capabilities of the project participants.
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This Section provides detailed information on the tasks that ensure the management and tracking of the project's financial items in an efficient and accurate manner. These tasks include elaboration of a financial plan, financial accounting reports, auditing procedures, administrative procedures for capital disbursement; mechanisms for approval and allocation of budget funds; cash flows and on-lending conditions: mechanisms for loan collection and repayment; co-financing mechanism.
4.1. Financial plan preparation
The financial plan must comply with Vietnam's current regulations on financial management and with regard to ODA projects, it must be in compliance with the commitments between the Government and donors. The financial plan contents cover capital volume, financing sources (from the State Bank, from loans or donors' non-refundable aids, the state credit funds, enterprises' funds or community contributions, etc.). Demand for funds for the project must be specifically calculated for at least the first year of implementation according to current regulations.
4.2. Accounting and financial reports and auditing agreements
To describe major procedures with regards to accounting, financial reports and detailed auditing mechanisms, including (a) maintenance of the project's accounts and internal audit reports, (b) timely provision of financial reports, and (c) arrangement of project auditors or company auditors.
- Maintenance of accounts and checking: To formulate uniform standards and forms for financial statements and reports. It may be necessary to hire consultants for formulation of a financial management system.
- Financial reports: including financial statements (usually including income statements, balance sheets, and sometimes income and expense reports or reports on funding procedures, settlement reports) and other financial information.
- Auditing process: To present independent auditing mechanism (not necessarily private auditors) applicable to annual financial settlements in accordance with guidance from the donor(s) and the Government. Major tasks related to audit include:
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4.3. Mechanisms for budget approval and disbursement
To ensure adequate and timely domestic capital for the project, it is necessary to describe procedures and time frame for the Government's budget approval, problems that may arise and solutions to handle them, mechanisms for temporary borrowings or other borrowing mechanisms in case the funds are not allocated in time.
4.4. Retroactive mechanism
A number of donors apply retroactive financing mechanism to accelerate the project implementation progress. In this case, it is necessary to estimate expenditure for retroactive financing so that the participating agencies are aware of the expenditure items which are subject to retroactive financing and the way they are financed in the pre-funding phase. The agency responsible for providing domestic capital shall make advances for the items that will be retroacted.
5.1. Bidding procedures
Procurement and bidding for construction, installation, goods, equipment and services for implementation of a project must be identified in accordance with current regulations and the donor's requirements, including:
- Description of the regulations on bidding to be applied and the reasons for such application.
- Bidding procedures to be applied.
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- Identification of major risks in bidding that may affect the project.
Bidding process must assure the benefits from market competition. However, the benefits from competition are normally linked to time cost. If the benefits cannot offset the time amount to be consumed for open competitive bidding, the restricted bidding may apply.
If the turn-key procedure is not applied and the project is to be divided into multiple bidding packages, it is necessary to indicate in details the criteria for division of bidding packages and the expenses and risks that may arise upon such division.
To clearly state the difference between bidding procedures of the donor and those of the Government, if any, and affirm the compliance with the contents of international agreements or credit agreements signed between the Government and the donors.
5.2. Management and preliminary bidding plan
To prepare the preliminary bidding plan, it is necessary to analyze all types of input needed to be procured and decide which types should be grouped into a contract (for example, to allow package bidding). To identify which bidding methods will be applied to each contract. Normally, a bidding plan can be identified only after the feasibility study report is available, when there is adequate information to identify all the biding packages. Hence, the preliminary bidding plan will be adjusted after the project investment decision is obtained. Besides the preliminary bidding plan, it is necessary to describe in details the bidding management methods, including the approval procedure of the authorized level. The following information must be presented:
- The preliminary bidding plan with contents as stipulated in the Bidding Law (the main contents in the preliminary bidding plan must include the items subject to competitive bidding; regarding packages subject to competitive bidding, it is necessary to provide information on the name of the biding package; bidding price; capital sources; bidding method; contractor selection method; form and time of contract implementation).
- Responsibilities of each unit in the project-implementing agency to participate in the appraisal of bid evaluation results.
- The outside agencies whose opinions must be obtained before the contract is awarded.
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5.3. Contract management
To describe the requirements on tracking and monitoring of contracts and human resources for those activities.
6. Project operation: institutions and management plan
6.1. Agencies responsible for project operation (if not coinciding with the project-implementing agency)
To describe institutional issues related to the project-operating agency:
- Legal aspects: legal bases, project operation site, legal form and status, autonomy, purpose (profit/non-profit).
- Organizational aspects: organizational structure (diagram), accounting system, information technology, internal control, management and staff, commendation, training.
- Experience from similar projects (number of projects, project size, capital sources, donors).
To describe operational and financial issues related to the project-operating agency:
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- Facilities.
- Cost-accounting/accounting form (budget/ commercial, cash accounting/ accumulative accounting).
- Capital sources, annual revenues and expenditures.
- Liabilities and assets, balance sheet (if any).
6.2. Procedure for transfer from the project-implementing agency to the project-operating agency
To describe functions and roles of the agency responsible for the project operation. To identify human resources for appointment to key positions in the project operation, technologies and skills to be transferred to the project-operating people and approaches in the transfer of technologies and skills.
The project operation management plan includes the following information:
- Mechanism of coordination among the project-operating agencies and between these agencies and the investors.
- Time frame for transfer of the project products to the project-operating agencies.
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- The personnel implementing the project who will continue to participate in the project operation.
- If the personnel implementing the project do not continue to participate in the project operation, it is necessary to state approaches for transfer of technologies and skills to the project-operating people.
- Roles of contractors in installation/ technology transfer and training on machine/ equipment operation for the people who will operate the project and do the maintenance work.
6.3. Management and project operation responsibilities
To specify the project operation management mechanism and personnel (expectedly to be under the project operation board), information on the officials to be appointed to key positions, (specific names need not be mentioned but types of personnel, qualifications and working experience must be specified). Technical information on the project operation should also be provided, such as information on goods/services, maintenance plan, etc. Regarding financial and commercial aspects, it is necessary to provide information on financial and accounting management mechanism, and in case of a commercial project, data on revenues (if any), customers, prices and costs (if any) is required.
VI. PROJECT OUTCOMES AND IMPACTS
To evaluate medium and long-term outcomes expected to achieve in the project and the methods of monitoring, including:
- The project investment efficiency: financial and economic benefits to be created in the project and expenses to be paid;
- Social impacts of the project towards poor people, ethnic minority people and local people. If the project is related to resettlement, a compensation mechanism for impacted people must be specified;
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- Risks and conflicts of the project.
- Mechanism for monitoring and evaluation of the project outcomes and impacts and indicators to be used to measure the performance, evaluation mechanism and reporting regime.
1. Mechanism for monitoring and evaluation of the project outcomes and impacts
To state project monitoring and evaluation methods. To conduct monitoring and evaluation, it is necessary to identify performance indicators, major undertakings in loan-funded projects and mechanisms for project evaluation.
1.1. Performance indicators
To identify instruments to be used to measure the project implementation results. To describe indicators to measure development impacts and indicators to measure progress.
- Indicators to measure development impacts:
To list key indicators to measure “development impacts”, or longer-term targets of the project. These indicators must be specific, measurable, feasible, appropriate and time bound.
- Reports and indicators to measure progress:
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It is necessary to clearly distinguish between (a) "Input" measurement indicators, (b) ''Output" measurement indicators and (c) Outcome measurement indicators.
- Mechanism for monitoring and evaluation includes any (a) demand for signing contracts for "status survey" and “project post-evaluation survey" with outside agencies, (b) utilization of technical assistance or consultants, (c) strengthening of personnel capability and training, (d) acceptance of implementation outcomes in technical terms; and (e) related details. To consider the identification of approaches to be applied and responsibilities for collection of data related to monitoring. Attention should be paid to the "status survey" and "project post-evaluation survey" designs so as to ensure good survey results.
1.2. Main conditions and undertakings in loan-funded projects
With regards to many ODA projects, the Government and donors may agree upon a number of undertakings that need to be done in the loan-funded projects. In this case, a summary table of main undertakings must be prepared. This table is usually used in quarterly reports or reports on project implementation whenever there is a delegation to come to evaluate the project. Since this information is very important to the Government and donors, both sides should stipulate similar forms for monitoring convenience.
The major activities and progress time frame committed by the Government for successful implementation of the project and responsibility fulfillment are normally specified in legal agreements. These commitments include measures to ensure the project's success and sustainability. These commitments may include:
- Accounting and auditing.
- Finance and revenues from beneficiaries.
- Cash flows and fund use.
- Domestic capital.
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- Environmental commitments.
- Voluntary resettlement.
- Issues of local (indigenous) people.
- Monitoring, evaluation and reporting.
- Project implementation.
- Policy, regulation and institutional issues.
1.3. Project evaluation mechanism
To describe the project evaluation mechanism. Evaluation is usually conducted after the project is completed when benefits from the project are obtained. However, interim evaluation may be conducted to raise appropriate adjustments if necessary.
1.4. Monitoring mechanism and reporting regime
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2. Investment efficiency: economic and financial efficiencies/ benefits
Financial analysis calculates all financial expenses in the project and revenues from the project from a specific organization's point of view. Financial analysis allows the identification of expenses, expense recovery, payment capability and revenues and investment efficiency. Financial analysis is based on the actual cash flows.
Unlike financial analysis, economic analysis take into account both costs and benefits from the national point of view rather than only the project cash flows. To perform benefit-cost analysis, the situations before and after the project are compared to specify the benefits brought about by the project and the costs arising for the whole nation. This is a complicated procedure, related to opportunity cost and shadow price as well as other elements like taxation and subsidies.
2.1. Financial analysis
2.1.1. Profitability (applicable to profit earning projects)
Financial analysis must be conducted as per actual costs, i.e., based on the price of the baseline year without taking inflation into account, including the following steps:
- Specifying related time period and segregate it into phases (usually 10-20 years).
- Using size analysis (see Section III. Item 1) and project costs (see Section IV. Item 1) to formulate a calculation sheet of total investment capital and allocation of these costs as per respective phases. Determining the remaining value of capital assets at the end of the period since this remaining value is regarded as the project revenue.
- Forecasting demand for the project outputs (See Section II, Item 1). It may be necessary to consider the demand for the project's goods and services, the roles of product prices and charges toward the demand, demand elasticity upon price changes, purchasing power, demand elasticity upon income changes, alternative solutions to satisfy demand, the project capability to meet the demand, quantity, price and value of each product in each year to determine the project revenue.
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- Identifying cash flows for all years to specify financial capability, i.e., checking whether there is adequate cash amount for each year to cover all respective costs or not. determine the capital recoverability as well as the fund shortage to find out an alternative to handle the shortage and calculate the project's financial efficiency based on (long-term) costs to an output unit (especially, in case of a project without revenue), the rate of revenue to expenditure or the rate of return on investment in the form of net present value and/or financial internal rate of return (FIRR) to serve as indicators to measure the capability of financial return generation.
- Financial analysis is finished with analysis of the sensitivity to define how the rates change when the assumptions change, e.g.; when investment costs rise, demand falls, exchange rates change...
- Comparing these figures with investment criteria (minimum costs) of the investor, donors and the Government and examining investment efficiency.
2.1.2. Liquidity: preliminary financial plan
Completion of the financial plan upon project implementation with data from the operation phase since the mobilization of resources to cover investment expenses is only a pan of the financial task. The other part is how to arrange financial sources to enable the project to complete financial mandates to the investors and donors. This requires loans and interests payable in the future to be within the project's income generation capability.
2.2. Economic analysis
Economic analysis must take into account benefits and costs at the national level in addition to what is related to financial analysis. However, in practice to identify the economic rate of return, economic analysis must start from financial analysis, then calculated results must be adjusted as follows:
- Dropping account transfers like taxes and subsidies I since these expenditures/revenues at the level of a specific unit are those at the national level; therefore, from the national point of view these items will be offset and no longer exist).
- Adjusting price and unit cost: If economic costs cannot be reflected since they are distorted in the market due to regulation measures or monopoly, accounting prices/shadow prices may be used. However, the need to adjust price and unit cost is decreasing since the world is becoming more and more competitive and trade is increasingly liberalized. Therefore, in most cases the market price more or less reflects more accurately the economic value. Thus, only when there is a clear and substantial difference between the market price and economic value, it is necessary to calculate and reason about the shadow price.
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After adjustment, it is possible to calculate the economic internal rate of return (EIRR) with the same calculation procedure as that of financial internal rate of return (FIRR). However, economic analysis is also related to many other factors in addition to FIRR adjustment. Economic analysis also includes evaluation of the project's sustainability to ensure encouragement of producers, adequate capital for the project operation to enable the project to bring about maximum benefits to its proper beneficiaries and assure that all social and environmental impacts (such as resettlement, issues of indigenous people) are analyzed.
3. Evaluation of social impacts
To summarize major social issues related to the project and present its social development results. To describe steps of social analysis and social analysis results and indicate that analysis results have impacts on the project formulation. The analysis report will (a) identify major social issues related to the project objectives; (b) identify major groups of stakeholders in the project context and study how the project will impact or be impacted by interactions between the groups of stakeholders; (c) identify the project's development impacts and anticipated activities to achieve its outcomes. If the project is divided into many phases or is an industry project of which social impacts cannot be fully identified at the project appraisal time, it is necessary to describe the way to complete, update social analysis and coordinate with other parties within the project.
Major social issues include capability to access project benefits, depending on groups of stakeholders, with regard to the same type of resources such as land, budget capital, selection of project stakeholders, public awareness, the risks that may arise from the project's negative impacts.
Stakeholders are civil organizations, enterprises and the public, social groups and individuals that may have positive or negative impacts on the project through their participation. Social analysis identifies poor and vulnerable groups, groups essential for the project's success, groups impacted by the project implementation. Groups of stakeholders may be included into or excluded from the project based on the issues of employment, geographical location, gender, ethnic people, religion or politics...
Social development results are the results presumed to be achieved by the project, such as interest in all social subjects, equality, enhancement of social organization and capital capability, reinforcement of social unity, empowerment, transparent governance and accountability, and mitigation of project negative impacts. To assess social impacts, depending on the project nature, it is necessary to specify substantial elements of the following:
- Major project stakeholders.
- Participation mechanism of major stakeholders.
- Mechanism to attract participation.
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- Capability to provide resources to civil organizations to help them cover direct expenses or to grassroots beneficiaries through civil organizations.
- Social development outcomes.
- Institutions to ensure the achievement of those social development outcomes.
- Official and unofficial organizations at the local, regional and national levels related to the project.
- Institutions of proposal to ensure that grassroots beneficiaries will have access to the project.
- Mechanism for service provision or methods to convey the project benefits to beneficiaries.
- Indicators to measure social impacts and social development outcomes.
- Resources to monitor the indicators for measurement of social development outcomes.
- Impacts to promote the project caused by monitoring with community participation.
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- Flexibility of the adopted mechanisms to cope with problems found in the monitoring and evaluation process.
- Measures to ensure the compliance with social protection policies.
- Mechanism for adoption of necessary actions during the project implementation.
Social impact assessment will show the way of evaluating the project from socio-economic and socio-cultural aspects. To understand the way of evaluating the project from socio-economic aspect, it is necessary to identify:
- The most important impacts brought about by the project to socio-economic development, and the influence of those impacts on poverty alleviation and hunger elimination, satisfaction of essential needs and the community's access.
- Comparison of the project's anticipated costs and benefits and its sustainability.
- The costs from the current approach compared to other alternatives to improve the life of project stakeholder groups, such as raising income.
- If it is possible to assert the project economic efficiency and interests, it is necessary to state the methods of evaluating the impacts of income distribution and employment creation.
- Subordinate negative social effects (such as impacts on some groups due to mitigated competition...) that the project may cause and the way to control these effects.
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- Methods to assess the project's impacts on minority ethnic people.
- Resettlement plan, if the project is related to resettlement.
- Satisfaction of the demand for funds for ground clearance and resettlement.
- List of the people affected by resettlement in the resettlement plan.
To understand the way of evaluating the project in socio-cultural aspects, it is necessary to be aware that:
- It is difficult to change behaviors and attitudes in a short time and this may even be contrary to the project's traditional values.
- Participation in or acceptance of the project by a stakeholder group or other important members may create unsolvable risks related to the project's sustainability.
- The project may create social changes.
4. Assessment of environmental impacts
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With regard to projects under the list of projects that require environmental impact assessment reports according to the Law on Environment Protection, the following principles should be applied upon environment impact assessment:
- Principle I: To focus not only on physical environment impacts but also on effects on productivity (such as plantation productivity, fishery productivity, subordinate agricultural products), health (such as diseases and mortality rate), recreation (such as tourism), biological diversity and other areas.
- Principle 2: To consider all environmental impacts and related effects inside and outside the project location, and the impacts that may arise but yet to be observed at the project location.
- Principle 3: To acknowledge that the environment has multiple advantages and such multiple-value nature is ranging from production values to life values. To identify which values the project can create and assess economic values of environmental impacts.
To summarize the steps to be taken to assess environmental impacts and prepare an environment management plan (including consultancy and information disclosure) and important issues and methods to handle them. The following information should be mentioned:
- Major environmental issues, including the aspects having impacts on the natural environment (air, water and land), human health and safety, global environment and social impacts.
- Relevant issues of interest that may create risks to the project in the future and measures to minimize the risks.
- The possibility to reflect importance of the issues and measures to minimize them through classification of environmental impacts.
- Major contents of the environment management plan and its coverage.
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- Mechanism to finance the measures to minimize impacts and environmental observation as mentioned in the environment management plan.
- The possibility to manage the implementation of the environment management plan of environmental institutions.
- Environmental compatibility of the conditions and commitments stated in the loan agreement (in case of ODA projects).
To assess environment impacts, it is necessary to consider whether the stakeholders are consulted at the phase of (a) preliminary assessment of environment and (b) formulation of the environment impact assessment report and environment management plan. To do so, it is required to describe:
- Mechanisms of consultancy used and the groups consulted.
- The compatibility of consultancy mechanisms and implementation mechanisms and monitoring and evaluation of the project's impacts on environment.
- Compatibility with the government policies of consultancy mechanisms.
- Mechanisms established to monitor and evaluate the project's impacts on the environment.
- Linkage of measurement indicators to the objectives and outcomes in the environment management plan.
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To specify major risks of the project (like delays in project implementation, technical, financial, political, environmental, social and institutional issues, etc.) - the risks that may have substantial impacts- and the risks that may affect the project's results if arising. To evaluate possibility of each risk and specify measures to mitigate the risk. To analyze sensitivity with such possible negative changes as:
- Increased capital costs.
- Increased operation & maintenance costs.
- Decreased income.
- Slowness in income generation.
- Economic changes.
To analyze sensitivity with possible negative changes, the report must mention the followings:
- Based on experience gained from similar projects, identifying major risks related to the creation and utilization of project products in accordance with the set objectives.
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- The risks that can be and cannot be controlled.
- Measures to be taken to mitigate the risks.
- Major elements of the project that can cause risks to its development efficiency.
- The project sensitivity variables based on analysis of nature of risks. The analysis of the project sensitivity will serve as a basis for determining the vitality of the project.
- Probability that minimum requirements are not met.
To identify controversial issues (e.g., in the mass media, with non-governmental organizations, or in the local communities), methods to monitor and control those issues. Controversial issues may comprise:
- Social issues: projects involving sensitive cultural and social issues like resettlement; changes in access to resources, breach of living routine; changes in economic and social positions, unequal distribution of interest and costs among the stakeholders; worsening of the inequality in terms of location, income and gender; change of the behaviors in a way unsuitable to attitudes on gender, incompatible with social standards and cultural or religious values.
- Ecological issues: projects related to changes to or direct or indirect destruction of the natural living environment or ecological functions. These issues are related to the natural living environment, biological diversity, exploitation of natural resources...
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- Governance issues: projects for solving, being affected or affecting the State's role, transparency and accountability. The concerns here may be issues affecting the political economy, fiscal balance/autonomy, assurance of covering all costs, tax policy, legal reforms, privatization, administrative reforms, procurement and bidding procedures, competitiveness in the government, decentralization, regulatory reforms, corruption, income inequality, rights of ethnic minority people, information access.
- Management capability: projects with weak management and implementation apparatus.
Project sustainability must be analyzed to ensure maintenance of the project's positive impacts. To analyze project sustainability, it is necessary to indicate the followings:
- The capability to sustain the technology used in the project after its completion.
- Level of funding for maintenance of the project's products after its completion.
- Project management and operation capability after project completion.
The above issues can be presented in the form of a Risk Distribution Box similar to an example of a chart that has been simplified with regard to infrastructure as shown below:
Type of risks
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Project-implementing agency
Construction unit/Contractor
Government
Creditor (commercial banks)
ODA-providing agencies
ECA, MIGA
Trade insurance
Other relevant agencies
Risk mitigation instruments
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Delays
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Excessive costs
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Construction contracts, provisions
Operation
Failure, loss
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Standard insurance
Technical operation
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Performance guarantee/ supply
Management
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Commerce
Operation costs
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Price
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Long-term public-private contracts; government guarantee
Demand
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Long-term public-private contracts
Payment
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Accounts - agreements
Finance
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Project finance, syndication
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On balance sheets
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Interest rate
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Exchange rate
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Loan term
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Force majeure risks
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8. Logical framework; (log frame)
The log frame helps policy makers identify inputs, outputs, outcomes and impacts of the project and possible risks. However, using a log frame has limitations such as:
- Detailed description of the projects makes the project design inflexible.
- Precise description of the project depends on objectively verifiable indicators. Collection of these data from “official” sources is easier than from the people. Therefore, project designers tend to focus on economic measurement indicators than on the people's experience, and they tend to ignore qualitative data and focus on quantitative data. This may make the project design less accurate.
- The log frame is normally neutral since project designers are not encouraged to focus on opinions of all stakeholders. Once again, this makes project design inaccurate since it omits opinions of some stakeholders.
- Project designers tend to complete the log frame at the last step in the project appraisal process (after the project has been designed).
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- The boxes of Objectives and Purposes of the project may be described far in details.
To handle the above problems, it is possible to adopt the following solutions:
- To encourage the project consultants to use opinions of stakeholders as assumptions to clarify the reality that the project's success much depends on the participation of the stakeholders.
- When formulating a project, it is more advisable to focus on procedures than on detailed descriptions. This requires time to be spent on periodical review of the project in the project implementation plan. This also requires that a series of log frames should be formulated to show different contexts that may happen during the project implementation.
Log frames should be formulated according to the following sample and should summarize the project design. A log frame usually consists of 16 boxes with 4 columns as below:
- Design summary: Providing basic information on the project and presenting this information in the form of cause-effect chain drawn from analysis of cause and effect. Anticipated inputs will lead to outputs, based on which the project's direct objectives are to be attained. These objectives will contribute to achievement of long-term or overall objectives of the project. Some log frames raise the concept of activities. Those are detailed tasks for using inputs to obtain outputs.
- Verifiable performance indicators: are the requirements of activities for each project component. These indicators include specific measures that can be sensed and quantified to gain the objectives at each project design level. These indicators are very important to the project monitoring and evaluation.
- Monitoring mechanism shows the information source and collection approach to monitor activities at each level.
- Assumptions and risks identify other conditions outside the project but are necessary for the project implementation. Therefore, at the input level, the output will be realized with assumptions that the project officers have necessary technical qualifications (assumptions) - and the output will create expected impacts - assuming that there would be no major natural calamities (assumption on risks).
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Verifiable performance indicators
Monitoring mechanism
Assumptions and risks
Overall objectives:
(A statement on the overall long-term objectives the project is anticipated to contribute to achieving)
These indicators show industry management according to good practice.
This column specifies the information source to verify the indicators and information collection procedure.
These assumptions are normally related to conditions, actions and reactions from outside the project and industry.
Specific objectives:
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A statement on changes of behaviors from groups or organizations benefiting from the project after the project is completed
Specify indicators to be reached; upon the program completion
The indicators tied to the program will be monitored and recorded in the project reports, project evaluation reports and reports of project monitoring delegations.
Assuming that the program's objectives will be reached in the long run, list necessary assumptions linked to the objective realization process. When it is necessary to collect data, the methods of survey and responsibilities of beneficiaries must be specific.
Project outputs:
Specify potential values upon completion of each component of the project
The output indicators are valued by quality and time. If no time point is specified, it will be understood as upon the project completion.
Output indicators normally comprise cost efficiency measures.
Output indicators are monitored and evaluated in various reports of the project: project review reports (interim, final) and reports made by project supervision delegations:
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Assuming that the outputs will be achieved upon the project completion, list additional assumptions (conditions, policy changes, behaviors of groups or organizations benefiting from the project) needed to realize the objectives.
Inputs/Activities:
A project component is a group of activities designed to attain an output/product of the project
It is necessary to list the component inputs such as total costs for each component, including provisional costs.
- Inputs are tracked through progress reports, (quarterly) disbursement reports.
- Inputs are evaluated through the reports made by the project monitoring delegations (biannual) and audit reports (annual).
Assuming that the project's activities and components are successfully implemented, list the assumptions needed to achieve the outlined outputs.
- 1 Circular No. 12/2016/TT-BKHDT dated August 08, 2016, guidelines for Decree No. 16/2016/ND-CP on management and use of official development assistance and concessional loans granted by foreign sponsors
- 2 Decree of Government No. 13/2006/ND-CP of January 24, 2006 on the determination of land-use right value for inclusion in asset value of organizations allocated land by the state without collection of land use levy
- 3 Law No. 32/2001/QH10 of December 25, 2001 on organization of the Government